Days before discussing the third review of Argentina’s loan, the IMF refuses to change its surcharge policy

The Executive Board of the International Monetary Fund (IMF) will meet this Thursday to discuss the third review of Argentina’s agreement with the agency, a source with knowledge of the matter told the Herald. If approved, that would mean that the country would have access to about US$6 billion that will be used to repay the agency.

As is protocol, earlier this month the IMF staff and the Argentine authorities reached a staff-level agreement on the review of Argentina’s 30-month Extended Facility Fund (EFF) arrangement for US$44 billion. This deal was approved in March under the current national government after renegotiating the debt then-president Mauricio Macri assumed in 2018 with the organization.

The Economy Ministry has taken the approval for granted and is currently completing a wire of some US$ 2,5 billion to the IMF to be sent in the following days.

However, at the end of last week, the Executive Board released a report in which they informed the IMF will not change its policy on surcharges, a claim the Argentine government started making two years ago. The IMF’s surcharges represent an increase in a debt’s interest rate when a country takes a loan that exceeds its allowed quota by 187.5%. For Argentina, whose obligations to the agency are an equivalent of 1000% of its quota, it represents a duplication of the debt’s interests or some US$ 1 billion a year.

Last November, after Argentina’s insistence on the matter, the G20 demanded a change in the surcharges policy. And in its last meeting, according to the official report, most IMF directors “were open to exploring temporary surcharge relief to help borrowing members free up resources to address the health and economic challenges posed by the pandemic”. A few of them even supported a “change in policy”. However, other representatives “did not see merit in exploring such options at this stage”. Their argument was that the average cost of borrowing from the IMF “remains significantly below market rates”. They also stressed the “critical role of surcharges” in the financial agency’s “ risk management framework” and in keeping “its role of global lender of last resort”.

Surcharges, according to the IMF, represent “about 45 percent of operational income”. Also,in 2021, the top five surcharge payers –which include Argentina and war-torn Ukraine– account for 95 percent of the Fund’s total surcharges income. 

The IMF also sees a risk related to Argentina’s debt. “Concentration to a single borrower has never been so high in recent peaks of the credit cycle,” they analyzed. The country currently has 38% of the agency’s total credit and, according to the IMF, “Argentina’s social, economic, and financial situation remains very fragile”.
Meanwhile, Economy Minister Sergio Massa is focusing his efforts on the IMF contemplating the additional costs the war on Ukraine has has on Argentin. He estimates it amounts approximately to  US$ 6 billion. According to journalist Liliana Franco, IMF director Kristalina Georgieva told president Alberto Fernández that this claim has a better chance to come to fruition than the one about surcharges.


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